Fixed Income Credit Analysis Model - Calculate Yields

CFA Level II Fixed Income
#1

This year the curriculum replaced the rather conceptual reading of risks involved in fixed income investments with a fairly quantitative one by Jarrow. I’m having a hard time going through the formulas.

Does anyone know how to calculate the Risk-free Zero-Coupon Yields in the tables of Example 8 on pp. 285-288? I’m trying to duplicate the tables in Excel. If you can, just give me the formula to one cell and I’ll be fine. I know that he gave you the yields in questions 1-3, but I was wondering how he came up with the yields for Q4-5.

Another problem I ran into with Example 8 for quesitons 1-3 is that the today’s date is not what the question says if you want to get the correct Years to Maturity. The formula I’m using is Years To Maturity = (Payment Date - Today’s Date) / 365. For example, if you want to get a Yrs to Mat = 3.6384, then your start date should be 2/10/2011, as opposed to 08/11/2011. Did he make a mistake or did I? Can anyone explain?

#2

I don’t have the curriculum (took L2 a couple years back). And there are more than a few folks like me hanging around. Without the curriculum, we can’t help. So scan/sceencap the problem and attach it.

#3

The only rub with that is that it might violate CFA Institute’s copyright. AnalystForum’s pretty sticky about that (as they should be).

#4

Sorry about that - didn’t mean to transgress (or cause others to).

#5

Hi busprof,

Thanks for responding. Would you mind if I email you the pdf, if AnalystForum is so strict about it? My address is divbebllbutterfly@gmail.com.

Thanks!

#6

Pistachioca,

I’m having trouble with how he calculated the PV in Q1-3…what formula is it that he used?

#7

Can anyone dumb down the calculation for PV (risk free) or PV (risky)?? I mean like actually calcuator commands…

I cannot seem to come up with the correct answers any where

Based on this data here:

-3%, 5year bond

Payment date Risk Free rate Credit spread

6/30/2001 0.15 0.13

12/31/2001 0.22 0.17

6/30/2002 0.25 0.18

12/31/2002 0.27 0.21

What are the calculator commands to calculate PV (risky) at year 2 for example?

#8

  • I can speak for the official curriculum:

  • First note that there is errata on this section for level-2, read that first on cfa website.

  • Second, note that it says these rates are continuously compounded…so use exp(-rt), so in EOC or BB simply use the formula (CF * exp(-rT)), you will get the right value of PV

The above table i realise is from Schweser the formula exp(-rT) does seem to work for risk free rate but it doesnt seem to work for Risky PV, so cant really speak for this third party provider…